- Start by tracking your spending, credit score, 401k contributions, and your child’s 529.
- Shuffle your portfolio at the end of the year to reflect your personal investment goals.
- Prepare for next April by estimating your 2015 taxes in December.
2016 is just around the corner, and you know what that means. It’s time to take a break from the eggnog and get your finances in order before the clock strikes 12 on New Year’s Eve. Give your finances a little love this time of year, and you’ll be ready to take on 2016 without money on your mind. Not sure where to start? Give this financial checklist a go:
10. Evaluate Your Spending
Reviewing a year’s worth of spending all at once can be an eye-opening exercise, but it’s the best way to cut back on all of those little unnecessary purchases that add up throughout the year. If you’re not using a personal finance app, download one like Personal Capital to track your spending. It also comes in handy to monitor your investments and calculate your entire net worth.
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9. Check Your Credit Score
If you’re ever going to want a mortgage, apartment, house, or car, having good credit is crucial. Your credit score can also be used to determine the price you pay for insurance, affect future job offers. Keeping tabs on your credit should be a regular priority, and it’s easy to do through any of the top three credit reporting agencies. You can also check in with your credit card issuer for a report – some have started supplying free credit scores as part of their services.
8. Make Charitable Contributions
December 31 is the deadline for contributing to a charitable organization and still being able to deduct it from your taxes, so there is no better time to give back. And remember, contributions don’t have to be cash. You can donate cars, clothing, food, household goods, and even shares of stock. Donating highly appreciated shares of stock from a taxable brokerage account has a triple benefit. It helps your charity, it can provide you a deduction on the full amount if the charity is qualified, and it can avoid capital gains tax on profits. If you want to see how effectively a charity uses its contributions, check out Charity Navigator.
7. Check In On Your FSA
If you’ve allocated money to a Medical Flexible Spending Account at work, check on both the balance and the terms of your plan. Some accounts let you roll over $500 of your balance from one year to the next, but not all have this provision. So if you have money in your account that you’ll lose if you don’t use it, now is the time to schedule end-of-the-year doctor appointments, order new glasses, stock up on contacts, and fill your prescriptions to put that money to use.
6. Start Or Fund Your Child’s 529
529 plans are the college savings vehicle of choice for most parents. That’s because they allow contributions to grow free of federal taxes and, in some cases, provide for a state tax deduction, too. In most states, December 31 is the cutoff for annual 529 contributions to be counted in that tax year, so get those contributions in now. And if you haven’t yet set up a college savings account for your child, make that a priority.
5. Estimate Your 2015 Taxes
You don’t have to file your tax return until April 15, but it’s good to have an idea of what it will amount to by the time the deadline comes around. Try a service like Turbo Tax to estimate your tax, and you’ll be prepared in case you end up owing money to the IRS.
4. Max Out 401k Contributions
Maxing out your 401k is one of the best ways to reduce your taxes and save more money for your future self. Funds you contribute to a 401k account are pre-tax dollars, meaning they’re taken out of your paycheck before you pay taxes on them. The benefit is that you lower the overall amount of income that you have to pay tax on now, and the money in your 401k can grow tax deferred until retirement. That is assuming, of course, that you don’t take any funds out of your 401k before the age of 59 ½, which incurs a penalty. The maximum you can contribute to a 401k account in 2015 and 2016 is $18,000. You can contribute up to $24,000 if you’re 50 or over.
3. Fully Fund Your IRAs
Hitting the contribution limits on your retirement accounts goes a long way toward your financial security later in life. The limit on both traditional and Roth IRA contributions for 2015 is $5,500 ($6,500 if you’re 50 or older). If you haven’t hit those amounts yet, now is a good time to make a little push to get there. The IRS is actually your friend in this area because you have until April 15, 2016, to make your 2015 contributions, so make a plan now. Your retired self will thank you.
2. Tax Loss Harvest
If you have investments that didn’t perform well this year, December could be a great time to sell them to reduce taxes you could owe on capital gains come April. If you have a net loss for the year, you can use up to $3,000 of losses to offset ordinary income. Don’t worry if you realize over $3,000 in net losses – the balance can be carried over to use next year. Just remember that if you do sell a security at a loss, you have to wait 30 days to buy it or any “substantially equal” security back in any account. This avoids triggering the “wash sale” rule, which could otherwise nullify your loss. Personal Capital actively manages taxes and looks for tax loss harvesting opportunities all year round on behalf of wealth management clients.
1. Rebalance Your Portfolio
Some people know what mix of investments they have when they create their portfolio, but that mix can change over time based on the performance of each type of investment and how subsequent contributions are invested. At the end of the year, see what your investment mix looks like and make any necessary adjustments to better reflect your investment goals and risk tolerance.
How will you use the end of the year to make the most of your finances? Do you have financial to-do’s to add to the list?